NEW YORK ( TheStreet) -- A federal judge on Thursday threw a monkey wrench into Citigroup's recent $285 million settlement of securities fraud charges. U.S. District Judge Jed S. Rakoff in Manhattan will hold a hearing on Nov. 9 before deciding whether Citigroup's Oct. 19 settlement of Securities and Exchange Commission fraud charges is "fair, reasonable, adequate, and in the public interest," and it would seem that the judge has his doubts.
Citi agreed to pay $285 million to settle the SEC's charges that Citigroup Global Markets had peddled a $500 million collateralized debt obligation -- for which it assisted in the selection of assets making up the underlying portfolio -- before shorting the mortgage-related assets it had just sold. Citigroup didn't admit or deny any wrongdoing when announcing the settlement, and Judge Rakoff -- who in August 2009 famously questioned Bank of America's ( BAC) agreement for a $33 million settlement with the SEC over the nondisclosure of billions of dollars in bonus payments to Merrill Lynch executives before Merrill was acquired by Bank of America -- questioned why the court should "impose a judgment in a case in which the S.E.C. alleges a serious securities fraud but the defendant neither admits or denies wrongdoing." The judge also wants Citigroup and the SEC to answer other questions at the Nov. 9 hearing, including whether there is "an overriding public interest in determining whether the S.E.C.'s charges are true," and whether the "interest is even stronger when there is no parallel criminal case. Since the SEC said in its charges that the victims of Citigroup's alleged fraud had lost "at least $160 million," Judge Rakoff also wants the SEC to say what the losses were, "at most," and also wondered whether the $285 million settlement would have a "meaningful deterrent effect " in light of July 2010 settlement of similar SEC charges by Goldman Sachs ( GS), for $535 million. As he did when questioning the Bank of America/Merrill Lynch settlement, Jude Rakoff asked why the $285 million penalty is "to be paid in large part by Citigroup and shareholders, rather than 'culpable individual offenders acting for the corporation.'"